© Reuters.
The Invesco QQQ Trust (NASDAQ: QQQ), an exchange-traded fund (ETF) launched on March 10, 1999 and with net assets worth $195 billion, has been under scrutiny due to its high concentration in large stocks technology, which contributes to volatility risk and limits broad diversification.
The fund’s top ten holdings were noted to include Nvidia (NASDAQ:), Meta Platforms (NASDAQ:), Broadcom (NASDAQ:), Alphabet (NASDAQ:) class A and B, Tesla (NASDAQ:), and Adobe (NASDAQ:) ), represent approximately half of the fund’s total assets. While the fund has a heavy concentration in technology stocks (57%), the Nasdaq-100 index it tracks is not purely a technology index, but also includes sectors such as consumer discretionary and healthcare. This structure may not be aimed at investors looking for a technology-focused or broadly diversified investment.
Despite its low 0.2% expense ratio and 8.95% annualized return, the fund’s concentration on big stocks like Apple (NASDAQ:), Microsoft (NASDAQ:), and Amazon (NASDAQ:) (26 % of assets) creates volatility risk. and hinders broad diversification.
In terms of performance, at the end of the first three quarters of 2023, its annualized return was 8.95%, almost identical to the index’s return of 9.17%. This suggests that while Invesco QQQ is efficient and performs well in its intended role by closely tracking the Nasdaq-100 Index, it may not provide the potential for significant growth beyond what investing directly in the Nasdaq-100 Index would produce. 100.
While beneficial for investors looking to mirror the performance of the index, this close alignment can be a double-edged sword. It may not offer substantial returns for those looking for significant growth, raising questions about whether this ETF is a suitable option for all types of investors.
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